Merger of Samruddhi Cement with Ultratech Cement

Honourable high court of Mumbai & Gujarat have given their permission of merger between Ultratech Cement and Samruddhi Cement. Samruddhi cement was recently de-merged from Grasim for pure cement play and Samruddhi is further merged with Ultratech cement (which also belongs to Birla group) for consolidation of cement business.

Since courts have given permission for merger, The ex date of merger should be announced in few days. The merger ration is 4:7 ie 4 shares of Ultratech cement for every 7 shares of Samruddhi cement.

There lies arbitrage opportunity in the merger process. Since samruddhi will be delisted as it will be merger with Ultratech cement, you can sell middle month and far month options. also there lies opportunity in carry trades.

Buy Samruddhi cement (CMP Rs 476/- * 7 shares)           3332/-

Sell Ultracemco futures (CMP Rs 853/- * 4 shares)           3412/-

Net gain                                                                                80/-

The amt will be released before the expiry of august contract (Maybe the price discovery will be happen before Ex date). there fore the returns on Investments will be 2.5 % for 1 months .